Mergers and P/E Ratios. If Acquiring Corp. from problem 6 has a price-earnings ratio of 12, and

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Mergers and P/E Ratios. If Acquiring Corp. from problem 6 has a price-earnings ratio of 12, and Takeover Target has a P/E ratio of 8, what should be the P/E ratio of the merged firm? Assume in this case that the merger is financed by an issue of new Acquiring Corp.

shares. Takeover Target will get one Acquiring share for every two Takeover Target shares held.

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